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Citigroup (C) Announces Upbeat Expectations, Stock Up 1.6%

Zacks Equity Research
Citigroup (C) projects fixed income and equity trading revenues in Q3 to be flat to slightly higher compared with the prior-year quarter.

Following the upbeat expectations announced at the Barclays Global Financial Services Brokers Conference on Wednesday, Citigroup’s C shares rose more than 1.5% to close at $70.51. The bank’s chief financial officer, John Gerspach, announced the company’s latest outlook for the Sep-end quarter.

The Wall Street biggie expects third-quarter 2018 fixed income and equity trading revenues likely to be flat to slightly higher on a year-over-year basis. Notably, Gerspach expects the current quarter to be partly negatively impacted by seasonal slowdown due to the summer months. Moreover, based on overall market developments and anticipated closure of some deals in the fourth quarter, investment banking revenues will likely be down year over year.

However, strong client engagement being experienced during the ongoing quarter indicates continued growth in accrual businesses across both consumer and institutional.

Improvised Outlook

Among other targets announced last year, efficiency ratio target of low 50% has been reiterated by the company with a 100-basis-point improvement in 2018, and around 400 basis points (bps) in 2019 and 2020.

Nonetheless, expense savings expectations have been increased to $2.8 billion by 2020 from the prior $2.5 billion, aiding to achieve efficiency ratio target and giving flexibility for increased investments.

Further, tax rate has been anticipated to be less than 24% by 2020, from the previous target of 33%. Therefore, based on these expectations, Gerspach expects to achieve RoTCE of more than13.5% by 2020, up 250 bps from the original target. Notably, write-down of DTA due to tax reform and better earnings projections reflects a 100-bps improvement.

Lastly, the company reiterated its top-line revenue growth in the range of 4-5%, driven by consumer, institutional corporate revenue growth, along with increasing digitization.

Our Viewpoint

An improving economic backdrop and optimism surrounding the interest-rate hike, easing of regulations and the tax reform are supporting banks’ financials. Though Citigroup expects slight better fixed-income trading activities in the near term, along with cost-containment efforts, seasonal slowdown due to the summer months might be a headwind.

Currently, Citigroup carries a Zack Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Citigroup have gained around 6.6% over the past three months compared with growth of 3.6% recorded by the industry.


Stocks to Consider

Comerica Incorporated CMA has been witnessing upward estimate revisions for the past 60 days. Also, the company’s shares have gained nearly 9.4% year to date. It sports a Zacks Rank of 1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

M&T Bank Corporation MTB has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 2% year to date. It currently carries a Zacks Rank #2.

SunTrust Banks, Inc. STI has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has rallied more than 10% year to date. Currently, it holds a Zacks Rank of 2.

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